Media Giants Get Set to Shrink Even More

by Jonathan Berr | January 29, 2013 9:27 am

Media Giants Get Set to Shrink Even More

If New York Times Co. (NYSE:NYT[1]) Chairman Arthur Sulzberger had a time machine, I bet he’d travel back to around 1996 to prevent his past self from ever putting any of his company’s content on the Web for free. Laura Lang, head of Time Warner’s (NYSE:TWX[2]) Time Inc. publishing unit, would probably hitch a ride on Sulzberger’s trip.

Of course, neither Sulzberger nor Lang can jump into the wayback machine, but think about what would happen if they could. It’s doubtful that Huffington Post or Buzzfeed would have ever come into existence if they were forced to license content from the major sites that are their lifeblood. Think of all the celebrity slideshows we’d be missing.

Indeed, the world as we know it wouldn’t exist if media companies hadn’t made such a colossal blunder. Google (NASDAQ:GOOG[3]), one of the most successful companies in history, and Twitter, which now is reportedly worth $900 million, would have never made it off the drawing board. Facebook (NASDAQ:FB[4]) founder Mark Zuckerberg probably would have designed better algorithms to rate the attractiveness of his female classmates at Harvard instead of the world’s largest social network.

Of course, investors can’t play “what if” games and must live in the real world, which for the kings of content isn’t looking so hot. For the past week or so, media websites have been chattering about the buyouts being offered at The New York Times and what impact these changes might have on the quality of the journalism at “the newspaper of record.”

People are also fretting about Time, after AllThingsD[5] reported Monday that the largest magazine publisher, is ready to announce “significant” layoffs of about 700 this week even though the business remains profitable in the contracting industry. That’s because like The New York Times, costs are probably increasing at Time at a faster rate than revenue.

During the last quarter, New York Times’ operating expenses rose 2.3% to $440.5 million, while revenue fell 0.6% to $449 million. That’s an untenable situation. Even with the uptick in digital subscriptions, revenues are forecast to decline 12% in the December quarter and 5.1% in the March period. It’s set to report financial results on Feb. 7, the day after Time Warner.

Time Inc.’s financials are also depressing. During the third quarter, revenue at the business, which has long been a laggard, slumped 6% to $838 million amid declines in circulation and advertising. It posted operating income of $127 million, by far the smallest of any Time Warner unit.

Time Warner CEO Jeff Bewkes has been under pressure to jettison the magazine business because its growth prospects are lackluster at best. Parent Time Warner is no stranger to dumping legacy content businesses. A few years ago, it got rid of the music business, whose prospects are as bad as, if not worse than, publishing.

When Lang was appointed to her job in 2011, she told Bloomberg News: ”great content matters, it always will.” Recent events have proven her right. Gawker Media’s Deadspin site has generated huge traffic after breaking the story about college football player Manti T’eo’s phony deceased girlfriend. ESPN, which is owned by Walt Disney (), came close to reporting the story first but held off because of concerns about journalistic fairness, according to The New York Times.[6]

What’s scary about that is Gawker’s costs for successfully breaking the story were probably less than half of ESPN’s unsuccessful effort. Managers at the old-school media giants need to be nimble to compete against smaller rivals, who can do more with less. Wall Street expects no less.

Sadly, that means employing fewer people.

As of this writing, Jonathan Berr didn’t own any securities mentioned here. Follow him on Twitter @jdberr.